Gold held around $950 an ounce in Europe on Wednesday, under pressure from a firmer dollar and a recovery in stock markets that diverted some investment from bullion.
Spot gold was bid at $950.40 an ounce at 7:58 a.m. EDT, against $951.25 an ounce late in New York on Tuesday.
"In Asian trading, the dollar index recovered slightly, which led to profit-taking in gold," said Peter Fertig, a consultant at Quantitative Commodity Research.
"Stock markets are indicating economic improvement, which also plays a role," he added. Nonetheless, it is the dollar which is setting the tone for trade, he said.
The U.S. currency edged higher against the euro on Wednesday after a European Central Bank official said further interest rate cuts cannot be ruled out.
The dollar had already received some support after a two-year U.S. debt sale on Tuesday was met with solid demand, easing worries about investor appetite for U.S. debt.
A firmer dollar generally weighs on gold, which is often bought as an alternative investment to the U.S. currency. Strength in the unit also makes dollar-priced gold more expensive for holders of other currencies.
Currency traders will be eyeing U.S. housing data due out later in the session for their impact on the dollar. Existing homes sales numbers are due out at 10 a.m. EDT.
Longer term, analysts say gold may benefit from rising U.S. inflation once the economy begins to recover. While at present the environment is still largely deflationary, this could change rapidly once economic activity picks up.
"Inflation is perhaps not the tune of this year, as demand remains weak despite all those green shoots," said VTB Capital analyst Ivan Ivanchenko. "But given how fast the environment is changing, inflation may come much faster than many expect."
Other commodities lent little direction to gold. Oil and most base metals prices inched higher after U.S. consumer confidence data released on Tuesday boosted the appeal of industrial raw materials.
UNDERLYING DEMAND
Underlying demand for gold remained relatively quiet, with holdings of the largest bullion-backed exchange-traded fund, the SPDR Gold Trust, little changed on Tuesday.
Physical gold demand in the world's largest bullion market, India, remained sluggish meanwhile as high prices deterred buyers, traders said.
Elsewhere silver was at $14.50 an ounce against $14.55. The metal is tracking gold lower but is likely to be supported by strong investment demand, analysts said.
